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Saturday, July 1, 2006

"Light" Helicopters Wanted

Artem Fetisov, Moscow

Russian helicopter operators badly need to modernize their fleet of aging Soviet-built rotorcraft. As domestic oil and gas companies steadily increase exploration and research work, commercial helicopter operators accumulate cash to procure Western equipment.

While Russian private and corporate operators are increasing their fleet of Western-built helicopters, domestic commercial operators are still stuck to Soviet-built equipment. To help understand the needs of the local market and appreciate the major trends, a brief overview of the Russian helicopter market follows.

The majority of commercial operators' clientele are located in the north regions of Russia, Siberia and Far East, in spots were the oil and gas industry flourishes, and where mineral and timber resources are concentrated. The transport infrastructure in these regions is very poor, and thus helicopter services are inevitable part of the daily routine.

Though the primary clients are oil and gas companies, demand from this industry is highly unsteady. For example, for the last three years commercial operators have been in dire straits as the demand for their services was flat. The slump was caused by the reversal in 2002 of Russian federal law that required oil and gas companies to finance geological research work. The situation was worsened when fuel prices start rising in 2004. All that resulted in a reduction of aviation activities and the retirement of economically inefficient helicopters.

While fuel prices remain high, the approach of oil and gas companies to geological research and exploration is changing. As a result, cash is flowing back to helicopter operators. The most vivid example of this is the airline company UTair--the biggest Russian helicopter operator, with 169 rotorcraft in its fleet. It has reported a significant increase in its domestic operations for 2005. Such a spike was triggered by the research and exploration activities of Surgutneftegaz, the oil and gas company that is a major customer of UTair, and reportedly one of its major shareholders.

Other helicopter operators cannot boast the same spike in domestic operations, as other oil and gas companies are not as active in research as Surgutneftegaz. Nevertheless, in 2005 operators showed positive operational and financial results as they compensated for lack of activity in the domestic market with intensifying operations abroad, mostly under contracts with United Nations organizations and other humanitarian bodies. For example, Nefteugansk United Airline Transportation Co. (NUATC) has reported a 16-percent increase in flight hours in comparison with 2005, thanks to new contracts from U.N. agencies. To meet the demand, NUATC has sent to Africa all of its 17 Mil Mi-8MTV helicopters, which are well suited to such missions. It even has procured two more Mi-8MTVs on the used-aircraft market.

Another market niche in which Russian operators have very strong footholds is transportation of heavyweight and outsized cargo. The demand for these services is met with Mil Mi-26s. The biggest operator of this type is UTair, which has 19 in service.

Still Russian companies are stuck with an aging fleet of Soviet-built helicopters. The equipment is robust, well-known to them and cheap. Most of these aircraft were inherited from Soviet era. That means operators got them for free and had minimum or no ownership expenditures (like lease payments). This fact offset their poor operational economics.

Very typical for the Russian helicopter fleet is the dominance of heavy helicopters. Historically, the Soviet approach to economics had influenced the domestic rotorcraft industry. One example is the Russian approach to helicopter classification, which often confuses foreign salesmen. One approach is based on helicopter maximum takeoff weight (MTOW). If the rotorcraft has a MTOW of less then 2 tons, it is considered a fourth-class helicopter. If the max takeoff weight ranges from 2-5 tons, it is a third-class helicopter. The second-class helicopter has a MTOW of 5-10 tons, and the first-class more than 10 tons. The second Russian approach to classification is based on the turbulence level produced by an aircraft. (The same standard is applied to rotary- and fixed-wing aircraft). Under it, an aircraft with a MTOW less than 7 tons is designated a light aircraft. Medium aircraft have a MTOW of 7-136 tons. Finally, a heavy aircraft has a MTOW of more than 136 tons. What a difference with Western classifications, under which the light helicopter has a max takeoff weight of less than 3.5 tons, medium ones from 3.5-10 tons and heavy helicopters more then 10 tons!

As a result, the helicopters in most demanded in Russia now are light- class rotorcraft. There is no serial production of light helicopters in Russia, while all so-called light helicopters in service are turbine Mil Mi-2s and piston-engine Kamov Ka-26s, which were developed 30 years ago. Due to their poor operational economics and safety level, most commercial operators have grounded them and perform light helicopter missions with Mi-8s. For example, UTair has to use 24-seat Mil Mi-8s for monitoring oil pipelines, carrying just two observers on board. Government and law-enforcement organizations show much the same demand for light helicopters. Some of them, like Emercom and the federal ministry of internal affairs, have already procured Western-built helicopters.

The recent hike in fuel prices aggravates the need to replace aging Soviet aircraft with efficient light and medium ones. Formally, Russian industry is offering light helicopters like the Kamov Ka-226 (the Ka-26 derivative powered by twin Rolls-Royce 250-C20R turboshaft engines), the 10-seat turbine Ansat developed by Kazan Helicopters and the Mil Mi-2A (the modernized version of the Mi-2). But none of these have entered production and thus can not cover the current demand for light helicopters. It should be mentioned also that all of these have maximum take-off weights of 3-3.5 tons, so they are on the brink between light and medium helicopters under Western classifications.

At the same time, the demand for medium offshore helicopters is increasing, though it is much more modest than for light helicopters. Some Mi-8 derivatives and Kamov Ka-32s are employed in offshore missions. But they are heavier then their Western counterparts (for example, Eurocopter's Super Puma models), they are less fuel efficient and have worse operational economics. Several Russian commercial operators are very interested in Western equipment, especially those that need offshore helicopters to serve international oil and gas programs. Some of the traditional operators of Soviet-designed helicopters in Commonwealth of Independent States countries have already shifted to Western offshore helicopters. For example, Azerbaijan's state company AZAL has procured four EC155B1s and two Super Pumas. UTair reportedly is considering operations of Western-built helicopters. The same true is for NUATC which plans a tender for Western helicopters.

One more odd aspect of the Russian market should be mentioned. Still none of the domestically designed and produced helicopters are certified by Russia's Interstate Aviation Committee as A-class aircraft. (Under Russian federal aviation rules FAR 29, the "A" class applies to a two-engine helicopter that can continue takeoff even if one engine malfunctions). Such a bizarre situation was caused in 1996, when new FAR 29 rules were adopted and a new classification was implemented. The intriguing thing is that in several state-backed programs Russian aviation authorities only allow operations of A-class helicopters. For example, when organizers backed by Moscow's city government set up an air taxi service, they had to choose the A-class W3 Sokol produced by the Polish company PZL Swidnik.

Given these peculiarities, Russian operators want to migrate to Western equipment. This trend will inevitably result in procurements of Western-built helicopters, since the operators' desire is backed by cash flow from new contracts. There are some signs that one more obstacle that hampers Western-equipment sales can be withdrawn -the unbearably high import taxes. After all customs payments are tallied, an owner pays 41.6 percent of the aircraft's declared value in customs fees. Domestic operators have been asking the government to decrease the taxes; now the changes seem to be coming. In May, local officials announced plans to slash import taxes to zero for business aviation within a year. Perhaps later they will do the same for helicopters.

FLEET OF RUSSIAN-BUILT HELICOPTERS REGISTERED BY RUSSIAN COMPANIES IN 2005*
Helicopter Type
Number in Operators Certificates
Average Age
Mi-2
602
20.6
Mi-6
28
29.3
Mi-8
1084
21.8
Mi-8AMT, MTV
162
13.0
Mi-10К
8
29.0
Mi-26
71
14.7
Mi-34
7
8.7
Mi-26
66
29.6
Mi-32
58
14.3
Source: GosNII GA
* Though the number of aircraft registered on aircraft operator certificates seems to be solid, most of them are grounded. That is true for Mi-2s, Mi-6s and Mi-10Ks. For example, at the beginning of 2006 only 200 Mi-2s were flying.
 
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